Planet Labs PBC (NYSE:PL) Q2 2024 Earnings Call Transcript

Planet Labs PBC (NYSE:PL) Q2 2024 Earnings Call Transcript September 7, 2023

Planet Labs PBC beats earnings expectations. Reported EPS is $0.07, expectations were $-0.15.

Operator: Good afternoon. Thank you for attending today’s Planet Labs PBC Second Quarter of Fiscal 2024 Earnings Conference Call. My name is Alexis, and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to Chris Genualdi, VP of Investor Relations. You may proceed.

Chris Genualdi: Thanks, operator, and hello, everyone. Welcome to Planet’s second quarter of 2024 earnings call. Before we begin today’s call, we’d like to remind everyone that we may make forward-looking statements related to future events or our financial outlook. We also reference qualified pipeline, which represents potential sales leads that have not yet executed contracts. Any forward-looking statements are based on management’s current outlook, plans, estimates, expectations and projections. The inclusion of such forward-looking information should not be regarded as a representation by Planet, that future plans, estimates or expectations will be achieved. Such forward-looking statements are subject to various risks and uncertainties, and assumptions as detailed in our SEC filings, which can be found at www.sec.gov.

Our actual results or performance may differ materially from those indicated by such forward-looking statements and we undertake no responsibility to update such forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. During the call, we will also discuss non-GAAP financial measures. We use these non-GAAP financial measures for financial and operational decision-making, and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making.

For more information on the non-GAAP financial measures, please see the reconciliation tables provided in our press release issued earlier this afternoon. Further, throughout this call, we provide a number of key performance indicators used by management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release. Before we jump in, I’d like to encourage everyone to reference the slides we have posted on our Investor Relations website, which are intended to accompany our prepared remarks. Finally, for each of the customer contracts referenced during this call, please note that the revenue figures we cite will generally be recognized over the term of the contract, which can last multiple years.

Further, the terms of these contracts can vary, we may not realize all expected revenue. At this time, I’d now like to turn the call over to Will Marshall, Planet’s CEO, Chairperson and Co-founder. Over to you. Will.

Will Marshall: Thanks, Chris, and hello, everyone. Thanks for joining the call today. For the second quarter of fiscal year 2024, we generated a record $53.8 million in revenue, representing a 11% year-over-year growth, in line with our expectations. Non-GAAP gross margin came in at 52%, above the high end of our expected range. Our adjusted EBITDA loss for the quarter was $14.5 million, also better than expected, reflecting company-wide focus on operational efficiency. We ended the second quarter with 944 unique customers, spanning across defense, civil government and commercial markets. Today, we’ll cover a number of items, including recent organizational changes, M&A, sales wins and product developments. So, let’s dive in.

Starting with the organizational changes. In Q2, we undertook significant efforts to focus and optimize resources in support of sustainable, long-term growth and profitability. Firstly, on August 1st, we announced a headcount reduction that led to an approximately 10% reduction in force. This was a difficult decision, but one that ultimately better positions Planet to the opportunity ahead of us. Our business has scaled rapidly over the last 18 months and while we see the market for our solutions continuing to expand, an increased breadth of projects and people resulted in increased cost and complexity. We expect this action will support greater focus, agility and operational efficiency across our organization. On product engineering priorities, we are pacing the buildout of our next-generation satellite fleets to optimize our resources and support our one-year payback targets for the satellites.

I’ll cover recent milestones achieved in our Pelican and Tanager program shortly. And one area we’re investing more behind is AI. We are seeing promising signs of commercial opportunity in AI, which I’ll cover in a moment. We’re also actively strengthening our go-to-market strategy. This itself has three components. One, aligning our teams and investments behind our core opportunities: defense and intelligence, civil government and agriculture solutions. Our direct sales team is focused on serving high-value large customer opportunities within these markets. This includes selling our daily PlanetScope scan with AI-enabled analytics to defense and intelligence customers, selling our [area] (ph) monitoring for regulatory enforcement to civil government customers, and selling agriculture solutions that utilize our Planetary Variables.

We plan to serve customers in other industries, primarily through our growing network of partners around the globe. Two, we will shift towards supporting smaller opportunities via our platform, enabled by the Sinergise acquisition, which we’ll discuss momentarily. These changes will allow our commercial teams to focus on high ROI, large opportunities in our pipeline. Three, we’re taking steps to streamline and simplify our sales processes. We expect these actions will increase sales efficiency and shorten customer time to value. Ultimately, these organizational changes and programmatic focus has sharpened our efforts on key priorities and reinforced our path to profitability. To finish up the organizational updates, in early August, we closed the acquisition of Sinergise, which will be a foundational element and accelerant of our Earth Data Platform.

We see Sinergise as an enabler to broad geospatial adoption and enhanced ease of use for customers, both speedening and widening customer adoption. We’re making our data easier to work with by enabling customers to analyze data and create applications directly on our platform. Today, our customers and partners typically build their own custom workflows to download, analyze and integrate our imagery. With Sinergise though, be more easily able to do this in our cloud platform, leveraging the geospatial power tools that Sinergise has created. This will speed time to value for our customers in addition to more deeply integrating our platform into critical customer operations. Leveraging Sentinel Hub, Sinergise’s self-serve platform, which already serve thousands of users, we will shift towards supporting small deals through a lower touch channel.

We’re excited about the step function expansion of our platform that this acquisition can enable and the incredible talents joining Planet. We’ll go into more detail and provide a demo of Sinergise’s capabilities at our Investor Day in October. Let’s turn to recent sales highlights. Starting with the defense and intelligence market, we recently closed an expansion with the US Space Force. This 12-month extension will enable support of Coalition partner’s military training exercises around the globe utilizing responsive commercial space capabilities. Through our work together, they have been leveraging SkySat images, SkySat Video and AI-based Vessel Detection to support the US Department of Defense’s commercial satellite capabilities. We also recently received a new seven-figure ACV award from a US government agency for high-resolution SkySat tasking solutions.

This award was won through one of our Planet partners. We’re proud of the work we do to support multiple agencies across the US government. Additionally, we recently won a seven-figure ACV contract to provide our data to a Ministry of Foreign Affairs in Asia. This is a new customer for us and the contract was one through one of our partners in the region. Within the civil government sector, we are seeing increased demand driven by disaster prevention, emergency response, as well as land management and permitting. For example, we recently expanded our contracts with multiple provincial governments in Canada. We closed a large expansion with the government of British Columbia; a six-figure ACV expansion contract with the Northwest Territories Center for Geomatics; and a six-figure ACV expansion with Quebec’s Ministry of Natural Resources and Forest.

Our data and solutions are being used to support critical disaster response efforts during the wildfire season to monitor the impacts of climate change on ecosystems and to support land rights across Canada. Similarly, here in California, our data is being used by authorities to identify areas at risk of wildfires and to inform prevention efforts. During Q2, we signed a new deal to provide PlanetScope monitoring, Basemaps, archive access, SkySat tasking, and Sinergise platform access to support wildfire fuel reduction programs. As the frequency and scale of wildfires increase, causing tens of billions of dollars in worldwide damages annually, and broader natural disasters causing hundreds of billions of dollars in damages, our solutions help government customers around the globe prevent and respond to these disasters.

In the case of wildfires, this can save significant costs through prevention and reducing severity, as well as help save lives. In Europe, we were recently awarded the new seven-figure ACV multi-year contract, delivering environmental monitoring to the UK Rural Payments Agency with our partner Earth-i. The UK government will use our data to support its Environmental Land Management Scheme, allowing for country-wide detection of a wide range of biophysical parameters. It’s worth noting that the Rural Payments Agency is an early example of a customer accessing our Fusion data via Sinergise’s platform. In the commercial market, we continue to add great customers across the agricultural solutions, energy and insurance sectors. Now I want to spend a moment on how AI, especially new generative AI and large language models are enabling Planet’s business traction.

Planet has a deep proprietary archive of Earth Data that grows by terabytes every day, a treasure trove for generative AI models to extract insights and create value. We’ve seen significant interest in this recently. And I’m pleased to report that last quarter, we signed our first deal in this area, a six-figure, three-month pilot to explore the potential to unleash the value of Planet’s daily data with large language models. And we continue to see real-world impact the AI models and Planet’s data can make together. The latest example of this was in response to the recent wildfires in Maui. In continued collaboration with Microsoft, together, we created an AI-based building damage assessment. Within 24 hours of being notified of the fire, this was delivered to the Red Cross, who used it to quickly rearrange work in the field to respond to the most urgent priorities first, better supporting first responders on the ground.

Damage assessment information is vital as it used to make operational decisions such as where to focus response efforts. It can also be the first step in validating addresses for residents that may qualify for financial assistance for instance. As you’ll recall, we’ve recently partnered with Microsoft to support a building damage assessment solution in response to the war in Ukraine and the earthquake in Turkey and Syria. Together, we’ve shortened the time it takes to deploy the building damage assessment in each event from months to days to hours. Whether human conflict or natural disaster, access to timely, reliable data is critical to supporting quick and effective humanitarian responses and, in some cases, avoidance and prevention. This important work has already led to interest in our solutions from other countries and organizations.

In-all, we see AI as a powerful force that can unlock the potential of our deep data archive and accelerate the adoption of our solutions. Before I turn it over to Ashley, I’d like to highlight a few recent product developments. We’re continuing to make great progress on our next-generation missions Pelican and Tanager. I’m excited to announce that our first Pelican tech demo, TD1, is now fully built and being ready for launch later this year. While this first Pelican is truly an R&D satellite, whose primary mission is to test the satellite platform and operational systems that are common between Pelican and Tanager, it’s a critical milestone in our program and I’m incredibly proud of our team’s progress, developing the unprecedented capabilities this new fleet promises.

Further, Tanager’s imaging spectrometer, developed and built by NASA JPL, is nearing readiness for integration onto our Tanager 1 satellite, which we expect to have ready for launch next year. The spectrometer is the instrument that will allow us to detect, pinpoint and quantify point source emissions of methane and carbon dioxide, which we’ve discussed before, has huge potential to support the global sustainability transition. Continuing in that vein, we recently shared our concrete plans for the upcoming release of our Forest Carbon Planetary Variable. This groundbreaking dataset aims to provide insights into forest change and carbon capture at nearly the individual tree level, serving voluntary carbon markets, forest-related supply chains, conservation and regulators.

Frequent and board area yet granular data are crucial tools to ensure successful carbon monitoring. Current offerings in this market are often based on data that is years out of date, or significantly lacking in accuracy. Our Forest Carbon product has the potential to match the accuracy of physical or airborne measurements at a fraction of the cost, covering the entirety of the Earth land mass. We plan to launch a global 30-meter resolution product this year and a global 3-meter resolution product, updated on a quarterly basis, in 2024. I want to underscore the significance here. With this capability, we hope to underpin global carbon markets, accelerating our ability to tackle climate change and supporting the multi-trillion dollar transition to a sustainable economy.

In summary, this quarter marked one of sharpening focus, increased operational efficiency and improving execution. While the economic climate has been challenging for many companies, including Planet, we also have clear opportunities for changes within our business, to support faster growth and a significant and growing pipeline of opportunities to pursue. We expect the changes we’re making will make Planet a stronger, more agile and more efficient organization. We continue to feel the pull from customers for insights that our business enables. Our focus is on improving execution across the board through prioritization and simplification. I’ll now turn it over to Ashley for a review of the financials and our outlook. Over to you, Ashley.

Ashley Fieglein Johnson: All right, thank you, Will, and thanks everyone for joining today. As Will mentioned, our revenue for the second quarter of fiscal ’24 ending July 31st came in at a record $53.8 million, which represents 11% year-over-year growth. Our revenue for Q2 does not include any revenue from the Sinergise acquisition, which closed in August, a little later than we had originally anticipated. On our prior call, we highlighted the record amount of qualified pipeline opportunities generated in Q1, which was more than double the quarterly average of the prior year. We remain pleased with the pace of qualified pipeline generation during the second quarter, reflecting the growing demand we continue to see for our solutions.

In particular, civil government pipeline growth has been especially robust, driven by applications such as disaster prevention and emergency response, fueled unfortunately by the climate crisis that continues to unfold around the Planet. In addition to agricultural and land use management and permitting, as Will mentioned earlier, we’re also seeing emerging opportunities in civil government for water monitoring and management applications, which our Planetary Variable solutions address directly. We were pleased to see a number of the seven-figure deals in our pipeline closed in Q2 across multiple vertical markets, and the teams continued to make progress against some of the even larger eight-figure opportunities that have emerged both for AI and sustainability related use cases.

As of the end of Q2, recurring ACV, or annual contract value, was 92% of our book of business. Over 90% of our book of business consists of annual or multi-year contracts and our average contract length continues to be approximately two years, weighted on an ACV basis. Net dollar retention rate, which we measure relative to the book of business at the beginning of each fiscal year, was 102%, and net dollar retention rate with winbacks, was 103%. The improvement in NDRR for Q2 relative to the prior quarter is driven by customer expansions, particularly in the government sector. It’s important to understand that at this point in the year, our net dollar retention rate is reflective of only six months. If you look at our prior two years, as detailed in our quarterly earnings investor presentation, our net dollar retention rate starts on day one of each fiscal year at 100%, then develops through the course of the year towards our final full year results.

For the full year, we are now targeting an approximate 115% net dollar retention rate, which is lower than we previously expected, driven by the anticipated delay of one of our eight-figure ACV expansion opportunities with a large government customer. Turning to gross margin, our non-GAAP gross margin for the second quarter of fiscal ’24 was 52%, unchanged from the prior year, despite the accelerated depreciation of two SkySat satellites discussed on our prior call, which had an approximate 4 percentage points impact. The rest of our satellite fleet is operating well in spite of the continued heightened solar activity, thanks to the skill, expertise and agility of our world-class mission operations team. Adjusted EBITDA loss was $14.5 million for the quarter, which is better than we previously expected, reflecting our focus on driving operational efficiency across the business.

As Will mentioned, we recently announced that we have restructured our teams to align resources behind our high priority growth opportunities and to reinforce our path to profitability. We expect to incur a non-recurring restructuring charge of approximately $7 million to $8 million. The majority of which will hit in Q3. The estimated reduction in our annual operating expense run rate entering fiscal ’25 is more than $35 million versus the exit run rate we expected when we started this year. Will already covered some of the changes we’ve made to our go-to-market strategy to increase sales efficiency and time to value for our customers. On the product and R&D side, we focused our teams and resources behind our core initiatives, including the Pelican program, our Earth Data Platform, and unleashing the potential of our data with AI.

As part of the efficiencies we are achieving within our Space Systems teams, we have reassessed the cost to deliver on some of our funded R&D programs, which resulted in a one-time increase in contra R&D expense recognized, reducing our R&D costs in the quarter by approximately $2 million. All of the changes we made across the business reinforce our commitment to achieve adjusted EBITDA profitability by no later than the fourth quarter of fiscal ’25 or calendar year-end 2024. We are sharpening our focus and getting more efficient as a company, which we believe supports growth in our core markets and healthy bottom-line expansion going forward. Capital expenditures, including capitalized software development, were $16.6 million for the quarter or approximately 31% of revenue, above the guidance range we provided, primarily due to the timing of materials purchased related to the Pelican program.

Turning to the balance sheet, we ended the quarter with $368 million of cash, cash equivalents and short-term investments, which we continue to believe provides us with sufficient capital to invest behind our core growth accelerating initiatives, and we still have no debt outstanding. At the end of Q2, our remaining performance obligations, or RPOs, were approximately $154.2 million, of which approximately 74% apply to the next 12 months and 96% to the next two years. The $16.2 million increase quarter-over-quarter is primarily driven by recently signed large contracts with government customers. As we shared on prior calls, please keep in mind that RPOs can fluctuate quarter-to-quarter, as multi-year contracts come up for renewal. Also remember that our reported our RPOs excludes the value associated with the EOCL contract, as well as other contracts that include a termination for convenience clause, which is common in our US federal contracts.

As we turn to guidance, I’d like to first provide color on our revenue forecast, especially as we are adjusting our forecast down from our expectations at the end of Q1. During Q2, we saw delays with some of our large government opportunities, which impacted our expected revenue for the remainder of the fiscal year. While these opportunities remain active and advancing, to account for elongated sales cycles, the low end of our range assumes that larger unsigned business contributes minimal revenue during this year. We have also adjusted the revenue contribution from Sinergise to account for the timing and integration of the business. The high end of our range assumes that our later stage pipeline opportunities [sign as] (ph) forecast and contribute revenue during the second half of the year.

We believe this approach to our forecast appropriately captures the revenue impact of delays with some of our larger opportunities. As mentioned, these opportunities are advancing and we are confident in our position to win them. For the third quarter of fiscal ’24, we’re expecting revenue of $54 million to $56 million, which represents growth of approximately 11% year-over-year at the midpoint. We expect non-GAAP gross margin for Q3 of 50% to 52%. We expect our adjusted EBITDA loss for the third quarter to be between negative $15 million and negative $13 million. We are planning for capital expenditures of approximately $12 million to $14 million. For the full fiscal year ending January 31, 2024, we expect revenue to be between $216 million and $223 million, or growth of 13% to 17% year-over-year.

We expect our non-GAAP gross margin to be between 52% and 54%. We expect adjusted EBITDA loss to be between negative $63 million and negative $55 million. We expect our CapEx to be approximately $48 million to $52 million, or approximately 22% to 23% of revenue. Before we turn to Q&A, I’d like to remind everyone that we are hosting an Investor Day on October 10, 2023 in San Francisco, as well as virtually. Please visit our Investor Relations website or reach out to our Investor Relations team, if you’d like to receive more details. We hope you’re able to join us. In summary, it’s been a challenging year in terms of the pacing of new business, which remains in contrast with the strong demand signals we continue to get from the market in the form of robust pipeline generation and high gross retention and expansion opportunities with our customers.

We continue to make significant progress across our business and the recent initiatives to refocus our operations, reinforce our path to profitability and strong cash position. We’re confident in the market opportunity ahead of us and our team’s ability to execute on our mission. Operator, that concludes our comments. We can now take questions.

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Michael Latimore with Northland. You may proceed.

Michael Latimore: Thanks very much. So on the — you mentioned the government verticals, maybe, seeing a little delay there, is that more international or US? Can you give some color on that? And if the US government gets back into kind of this continuing resolution pattern, how do you think about that, I guess, affecting the business?

Will Marshall: I think it is both. But just one point on that, just typically, government deals do take a little bit longer, because we got so much of our pipeline on the government side, both civil government, which actually is a big factor of it, as well as defense and intelligence. It does take a little bit longer to close, because the nature of those deals and those complex processes. Ashley, anything to add on that about the international versus domestic?

Ashley Fieglein Johnson: I think we’re seeing it on both per Will’s point. The budget challenges in DC certainly don’t help companies that are selling to the US government. But we still continue to win business there. And by example, we recently did win a deal with the Space Force and another US agency. So, business is continuing and will continue to do so in spite of a continuing resolution, but nonetheless, we do see sales cycles elongating, generally speaking, in the government sector.

Michael Latimore: Got it. And then, it seems like you’re announcing a nice number of seven-figure deals. Do you have the latest stats on the seven-figure deal count now versus a year ago or something like that?

Will Marshall: Yeah, actually, I mean, we do have a huge pipeline of qualified opportunities. I can share that we’ve actually got 70 deals, seven or eight figure, in our qualified pipeline today. And so, we’ve got a huge opportunity to go after. So that continued to expand that pipeline of opportunity in Q2.

Ashley Fieglein Johnson: Yeah. And just in general, seven-figure deals in our business have grown year-over-year quite well. So, we’ll talk about more of those stats at our Analyst Day.

Michael Latimore: Okay, pretty good. Okay, thank you.

Ashley Fieglein Johnson: Thank you.

Operator: Thank you for your question. Your next question comes from the line of Jason Gursky with Citigroup. You may proceed.

Jason Gursky: Hey, good afternoon, everybody. Ashley, a quick one for you. You continue to reiterate the profitability breakeven next fiscal year, by the end of the year there. Can you update us on your assumption related to revenue growth that’s tied to that statement?

Ashley Fieglein Johnson: Well, I’d say we’re committed to that regardless of revenue growth for next year. So obviously, getting to operating profitability is an important first step in getting to overall cash profitability. But, in terms of thinking about next year’s growth, while we’re not giving specific guidance at this point, I’d just remind you that this year, we did have some pretty significant headwinds coming into the year that we talked about from a growth rate perspective, and that included the large legacy contract that was about $12 million last year and contributed very little revenue this year, as well as some of the commercial customer contraction that we talked about, just given the general macroeconomic environment that we saw coming into the year.

So, as we continue to build business this year, we’ll be overcoming some of those difficult compares year-over-year, as we think about next year and the potential to really see the growth rate reaccelerate. But as I said, we’re not relying on growth rate — significant growth rate acceleration in order to get to that commitment to EBITDA breakeven.

Jason Gursky: Okay. And then, Will, on Pelican, you described, for lack of a better phrase here I guess, unit one, as a little bit more of the R&D prototype. I mean, that was the word that you used to test out some of the…

Will Marshall: Tech demo, yeah.

Jason Gursky: …similarities, yeah, demo, there we go, that’s the word, yeah, so that you can make sure that whatever you’ve got going on there, it’s going to work with Sinergise as well. So, is the expectation here that this initial launch won’t have any revenue associated with it, and they are just using it is kind of a test-bed?

Will Marshall: I think that’s correct. Yeah, I mean these are tech demos. I mean, the way we do we’ve described before agile aerospace approach, which is one of our core differentiators that enables us to rapidly improve capabilities overtime and respond to demand from the customers both in the sense of improving capabilities and ramping up the number of spacecraft we need for demand and continuity of our spacecraft mission. And always, through the history of developing new spacecraft, especially new spacecraft bus like the Pelican that supports both Pelican and Tanager, those are complicated new spacecrafts. So, the main thing we’re doing on our first mission is establishing the spacecraft itself over the aspects of it, the reaction wheel within the solar panels and the radios and the computers and everything, work together. And that’s the most important piece is getting data on all of that. And then subsequent ones we will turn into operational spacecraft.

Jason Gursky: Is it gonna go up with electro-optical sensor on it? You named everything, but the sensor…

Will Marshall: No, it’s going up with the payload, but just not in the prime mission of the spacecraft to drive that so much as to learn and improve that spacecraft path. And again, it will go up with a Pelican bus — sorry, payload, i.e. the telescope, the high-resolution telescope. But mainly the bus that will also support the hyperspectral instrument for the Tanager mission that we next year — I also mentioned that the hyperspectral instrument is nearing readiness now. So we’re close on that one too.

Jason Gursky: I guess the last one for me…

Will Marshall: Does that make sense to you? Yeah.

Jason Gursky: Yeah, it does. Yeah, for sure. I appreciate that. And then last one for me. Just turning quickly to the commercial side of things, we’ve got some new regulations going into effect in Europe to require companies that are bringing sourcing materials from other parts of the world to kind of prove out their supply chains, and how those impact deforestation that’s going on around the world. Just kind of curious as to how do you see Planet playing in this and supporting companies that need to demonstrate to the EU regulators that the materials that they’re sourcing are not leading to the deforestation in sensitive areas of the world.